US insurers in tatters: Storms drive more firms to the wall. Larry Black reports from New York

A NUMBER of US insurance companies have been plunged into severe financial difficulties by last weekend's 'storm of the century' on America's East Coast. The catastophe comes hard on the heels of a disastrous year that saw US property insurers pay out a record dollars 23bn in losses from hurricanes, floods and riots. Underwriters are also struggling to cope with the World Trade Center bombing.

Some insurance companies haven't had enough time to recover, particularly in Florida, where a number of smaller firms that managed to survive the devastation of Hurricane Andrew last August are expected to collapse as a result of the recent storm. Many have found the cost of reinsurance, which has doubled in many cases, to be prohibitive; at the same time many coastal property-owners have discovered they simply can't buy catastrophe insurance at any price, as the state's largest insurers have moved to cap their exposure.

Hurricane Andrew cost Florida insurers a record dollars 15bn, and since then the reluctance of the re-insurers has forced them to retain a much higher share of risk. Jay Cohen, insurance analyst at Salomon Brothers, said small firms 'will have to eat much more of the losses' from last Saturday's storm, in which 50 tornadoes touched down in 18 Florida cities while 100mph winds ripped up much of the early vegetable crop.

Some 45 American insurers went bankrupt last year, at least one in four as a direct result of Andrew. Regulators say it is too early to guess how many small Florida firms will go under this spring. Insurance adjustors, who have been working almost non-stop since last summer, fanned out across the eastern seaboard again last week, and preliminary figures on losses won't be available until this Tuesday, when the industry's reporting agency is also expected to release its cost estimate for the Trade Centre bombing.

But comparing last week's tornado and snow damage with that suffered in storms in the same areas last November and December, the leading US insurance-rating service, A M Best, estimates the loss will be between dollars 800m and dollars 1bn, with Florida suffering at least dollars 500m of that amount. Industry analysts expect owners and tenants of the World Trade Centre to claim another dollars 1bn.

Combined with lesser disasters, the industry has already paid out more than dollars 3bn in claims so far this year, a pace well ahead of 1992 - a year that included the Los Angeles riots, flooding in Chicago and Manhattan, a record 1,300 tornados and two hurricanes. 'Things are not starting out well this year,' said Sean Moody, chief economist with the Insurance Information Institute, an industry body. He added that US insurers, which still have dollars 163bn in capital reserves after last year's dollars 23bn payout, 'were able to take that kind of hit . . . but it obviously can't go on forever'.

The uncanny string of disasters (insurers have paid out more in the past four years than they did in the previous 20) does have a silver lining for the industry, particularly in reinsurance. After five or six years of soft rates, the bad year has given the industry a convincing pretext to raise prices. Reinsurance rates have risen by between 30 and 300 per cent in recent months, and A M Best said the ability to increase rates will soon spill over into the rest of the industry. The losses in 'catastrophe-prone regions could probably justify a 15 to 25 per cent rate hike,' the agency said, although regulators would likely force underwriters to spread it over three years.

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